Wednesday, March 16, 2005

EDITORIAL>> Another giveaway to special interests

It is an article of faith with lawmakers that they never stand taller than when they stoop to help a big industry avoid taxes.

Since 1983, the Arkansas Legislature has enacted more than 100 laws granting exemptions from state and local sales taxes, nearly all of them benefiting a whole industry or a single sizable company.

Together they shrink the state’s tax collections by hundreds of millions of dollars and are one big reason that the natural rise in tax collections from economic growth has tailed off dramatically. And it helps account for the state’s perpetual budget problems and the perpetual need to raise taxes on working folks.

The trend runs apace at this legislative session. Thursday, the Revenue and Taxation Committee of the House of Representatives voted out a bill that would phase out the sales tax on electricity and natural gas paid by the giant timber industry.

The industry lobbyists gave the same premise that always sells these exemptions: Profits are not high enough now to compete satisfactorily with products from outside our borders and Arkansas jobs may be lost some day. Now it’s foreign competition that we must meet by cutting taxes and raising profit margins.

The tax exemption would be phased in and ultimately would reduce government tax receipts by $11.5 million a year.

Monday, the House overwhelmingly approved a bill excusing a chemical company that shortly will open at El Dorado near a sister company from paying the sales tax on electricity. Other-wise, the sponsor said, the mill might run to Mississippi.

Altogether, 28 bills that would reduce state and local sales tax collections by an aggregate $200 million a year are wending their way through the legislature. A few may not make it, and one or two may not reduce taxes for many years if they become laws. But legislators have always found these exemptions irresistible.

You might think that the timber industry would be reticent at this session.

The battle over Deltic Timber Corp.’s effort to kill Central Arkansas Water's eminent-domain powers so that it can build a giant subdivision above the intake for the region's municipal water supply has focused attention on the absurdly low real estate taxes paid by the industry. The cumulative school, county, city and improvement district taxes paid on commercial timberland in Arkansas run from far less than one dollar an acre a year to $1.35 an acre.

House Speaker Bill Stovall, who voted against the tax break, thought the industry was already benefiting from unusually favorable tax laws. Industry spokesmen acknowledged that the low property taxes were helpful but said they needed even more tax breaks.

The last big tax break for the wood-products industry —and it was a whopper — came in 1985, when all the big paper mills and other manufacturers rode the coattails of International Paper Co., which got permission from the legislature and Gov. Bill Clinton to have Arkansas taxpayers pay 7 percent of the cost of modernizing their mills through a seven-year sales tax rebate to manufacturers.

The sales tax on electricity and natural gas is perhaps the cruelest tax in the state’s arsenal because it consumes a large portion of the income of low-income families, whose homes are the most energy inefficient and consume the most gas and electricity.

If the state had ample revenues to pay for its urgent needs (it doesn’t) then that would be the place to give relief.